Train project could go off the rails

The consortium responsible for 626 new train carriages for NSW, known as the Waratah train project, is facing financial collapse.

Directors of the Reliance Rail consortium said it might not be able to meet its financial obligations if its credit ratings did not improve. The train project is worth $3.6 billion.

Reliance Rail, which is part-owned by engineering group
Downer EDI
, said it might have trouble refinancing its bank debt “at rates which do not impact the project’s overall economic viability" because of its credit ­ratings, according to financial accounts lodged with the corporate regulator.

It might be forced to restructure its financial arrangements or seek “additional support from related or third parties", the accounts said. The accounts were finalised before a Standard & Poor’s decision last week to put Reliance Rail’s ratings on negative watch, a move usually taken before lowering a rating. Moody’s may cut its rating, too.

Reliance Rail does not have to refinance its almost $2 billion of debt until 2018. However, four banks providing $357 million in loans from 2012 are seeking legal advice about withdrawing the facility because the viability of the project’s financial insurers is in doubt.

The NSW government has insisted it won’t cover any funding shortfall. But it might be forced to act in the months ahead to avoid the collapse of yet another transport project. A spokesman for Transport Minister
John Robertson
said yesterday: “Reliance Rail has a contract and the NSW government expects them to meet their obligations." Reliance Rail is contracted to build 78 new eight-car trains by 2013. After a five-month delay, the first train is due for delivery on December 16. The government warned earlier this month that safety checks could push out actual delivery of the trains to April next year.

Reliance Rail’s chief executive, Terry Kearney, said the directors recognised the credit rating issue “does need to be addressed". However, he said the project was on track and that the financial impact of any delays would be covered by penalty payments from Downer. Downer said it was “fully committed" to the project.